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Dai or Die: Why the Taxonomy of Crypto Matters

With a market capitalization of approximately $7.5 billion, the Maker’s Dai token is the 12th largest cryptocurrency overall and the 4th largest stablecoin behind Tether’s USDT, Circle’s USD Coin and Binance USD.

However, Dai will no longer be a “payment stablecoin” if the “Responsible Financial Innovation Act”, a bill to regulate cryptocurrencies introduced by two U.S. Senators in June, is enacted.

See also Senate Crypto Bill Debuts, Crypto Industry Wins Big

so what? A rose by any other name may not even be a flower when it comes to the classification of financial assets, including digital assets such as cryptocurrencies and stablecoins.

Also, given that the bill defines stablecoins for payments, Dai may no longer be legal in the United States.

This is because a “payment stablecoin” is defined as a digital asset that:

A) May be exchanged 1 for 1 for USD denominated securities, if desired.

B) defined as legal tender [U.S. law] or under foreign law (excluding digital assets);

C) Issued by an entity.

D) accompanied by a statement from the issuer that the asset is redeemable…from the issuer or another identified person;

E) is backed by one or more financial assets (other than other digital assets) consistent with subparagraph A); and

F) Intended for use as a medium of exchange.

However, Dai is backed by other digital assets (such as Ether and USD coins) and locked into smart contracts that are used as collateral to maintain a 1:1 peg between Dai and the US dollar.

Related: The DeFi Series: What Are Algorithmic Stablecoins? DAI and fiat dollar pegs

In other words, it is an algorithmic stablecoin. Not much like TerraUSD, he wiped $48 billion from the crypto economy when LUNA, the partner token used to maintain the peg, collapsed after his one-week run in May. It is an algorithmic stablecoin.

read more: $45 Billion Stablecoin Crash Confirms Worst Concerns About Crypto Reserve Needs

Please note Sections A and E.

According to the bill, they “must be issued by a depository” [which] High-quality liquidity must be maintained…representing at least 100% of the face value of the institution’s liabilities in payment stablecoins issued by the institution. ”


It may or may not happen this year, but soon the US will follow the European Union. The European Union is expected to finalize the terms of the Broad Crypto Asset Market (MiCA) Regulatory Framework Bill and pass it into law. soon.

MiCA defines “crypto assets” as “digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology.”

This is not too different from how the Financial Action Task Force (FATF), the international body responsible for setting financial regulations, defines “virtual assets”. use for payment or investment purposes; ”

again, so what? MiCA’s definition of a “crypto asset service provider” or CASP is different from the FATF’s definition of a “virtual asset service provider” or VASP.

MiCA’s CASP definition is broader than the FATF’s VASP, according to anti-money laundering provider Sygna. The company said this is “to ensure that MiCA is applicable to most cryptocurrency companies and future-proof for market niches that do not yet exist.”

The problem is, being a VASP comes with many legal and due diligence requirements and responsibilities. Where does a CASP fall under? And who wants to find out the hard way?

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